Strengthening the DAU Specific Grant Activity List to Accelerate the Fulfilment of Basic Services

Since 2023, the central government has allocated a specific-purpose component within the General Allocation Fund (DAU), known as the Specific Grant (DAU SG), to assist subnational governments in reducing public service delivery gaps and accelerating the achievement of Minimum Service Standards (MSS). The DAU SG aims to close fiscal gaps and strengthen basic services across the education, health and public works sectors. However, implementation has not yet achieved its intended focus on essential service outcomes. Implementation continues to face challenges with the differing interpretations of MSS indicators between the Ministry of Finance (MoF) and the Ministry of Home Affairs (MoHA). The list of eligible DAU SG activities under Kemenkeu Regulation No. 102 of 2024 remains excessively broad, with fewer than half of the listed subactivities directly supporting MSS. The use of the DAU SG funds is also dominated by recurrent expenditures such as salaries, while subnational governments have limited capacity to coordinate cross-sectoral sub-activities. Delays in receiving allocation information further constrain planning. This policy brief recommends refining the list of DAU SG activities and subactivities to sharpen the focus on essential services. It also calls for classifying MSS-related subactivities by the relevant technical ministries to ensure coherence between fiscal and delivery goals. Joint ministerial circulars on technical guidelines should be issued to enhance consistent implementation. The timing of definitive allocation announcements should be aligned with budget cycles to enable MSS data-driven planning.